Hong Kong Chemical Company Generates Hefty Cash Flow

Kingboard is a good company to watch out for


Stock: Kingboard Chemical Holdings Ltd (HK: ticker 00148

Kingboard Chemical Holdings, a $46.8 billion (HKD) Cayman Island-incorporated investment holding company, has provided outstanding 93.4% total returns to its shareholders so far this year.

According to filings, Kingboard Chemical Holdings has been ranked the world’s top laminates producer for twelve consecutive years.

The Hong Kong-based 29-year-old company has businesses in relation to manufacturing and selling of laminates, printed circuit boards, chemicals, liquid crystal displays, magnetic products and property development and investments.

Despite having risen so much so far this year, Kingboard trades at a PE multiple 8x, PB ratio 1.1x, and PS ratio of 1.3x. The company also has 3% trailing dividend yield with 29% payout ratio.

In the recent six months, Kingboard’s revenue increased 1.9% to $18.7 billion (3 year average 0.14%) and with profits rising an impressive 45% to $2.18 billion (3 year average 19.3%).

As of June, Kingboard had $6.5 billion in cash and bank balances (+$61.6 million from December) and $16.4 billion in borrowings (-$479.5 million less) with debt-equity ratio 0.4x compared to 0.45x in December.

Kingboard also increased its equity (book value) by $3.2 billion to $40.8 billion.

In the past three years, Kingboard reduced its debt by $7.8 billion, allocated $2.9 billion in capital expenditures, generated $12.8 billion in free cash flow, and provided $1.5 billion in dividends with 12% payout ratio.

Using historical revenue growth rates multiplied with PS multiple and a 10% margin indicated a per share figure of $15.14 compared to $43.85 at the time of writing.

Clearly, my valuation is out of whack on this one but Kingboard definitely knows how to generate free cash flow.

In the meantime, I take a pass.

Disclosure: I do not have shares in Kingboard.

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